Tag: withdrawal limit

Deccan Urban Co-op Bank withdrawals capped at Rs 1000 per customer; RBI bars from lending, investing

Banking & Finance

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(Image- REUTERS)

The Reserve Bank of India (RBI) on Friday imposed a Rs 1,000 cap on withdrawals from all savings, current or any other accounts of Deccan Urban Cooperative Bank. The restrictions shall stay in force for a period of six months as RBI looks to improve the bank’s liquidity position, the central bank said in a statement late Friday. The curbs come into force from the close of business on Friday, February 19, 2021. The withdrawal limit imposed on the bank is similar to that imposed on PMC Bank, Lakshmi Vilas Bank, and Mantha Urban Cooperative Bank in the past.

Deccan Urban Co-operative Bank, a Karnataka-based lender, has also been barred from granting or renewing any loans and advances. It has also been barred from making any investment; incurring any liability including borrowal of funds and acceptance of fresh deposits; disbursing or agreeing to disburse any payment, whether in the discharge of its liabilities and obligations, or otherwise.

The move will also restrict Deccan Urban Co-operative Bank’s ability to enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except as notified in the RBI in its direction sent to the bank.

Although the withdrawal limit has been capped to just Rs 1,000 per account, RBI has said that depositors will be allowed to set off loans against deposits subject to some conditions. “The issue of the above Directions by the RBI should not per se be construed as a cancellation of the banking license by RBI. The bank will continue to undertake banking business with restrictions till its financial position improves,” the Reserve Bank of India said.

RBI had earlier in November last year imposed a penalty of Rs 1 lakh on Deccan Urban Co-operative Bank, for contravention of the directions issued by it on the prohibition of loans and advances to directors. The central bank has earlier placed similar restrictions on banks such as Yes Bank where the withdrawal limit was capped to Rs 50,000. Similarly, PMC Bank’s withdrawal limit was also capped to Rs 50,000 but was later revised t0 Rs 1 lakh. Lakshmi Vilas Bank was the latest in the line where the withdrawal limit was capped at Rs 25,000 per account.

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Banks under Directions: Govt, RBI working on allowing depositors withdraw up to ₹5 lakh

Banking & Finance

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Depositors of Urban Co-operative Banks (UCBs), under Directions, may not have to sweat it out to get back their savings up to the ₹5 lakh insured amount, going by the amendments being considered to the Deposit Insurance and Credit Guarantee Act (DICGC), 1961.

The Government and the Reserve Bank of India (RBI) are believed to be examining the feasibility of allowing depositors of banks, especially UCBs, under regulatory Directions to withdraw up to the ₹5 lakh insured amount to alleviate their misery.

 

At present, when a bank is placed under Directions, deposit withdrawals are capped — it ranges from ₹1,000 to ₹1 lakh of the total balance held by a depositor. This withdrawal cap is applicable for the entire period that a bank is under Directions.

Given that depositors of UCBs under Directions are finding it difficult to get by due to the severe restrictions on withdrawal of their savings, the Finance Ministry and RBI seem to be wanting to address this issue by allowing withdrawal up to the insured amount of ₹5 lakh, according to bankers in the co-operative sector.

DIF fortified

The possibility of allowing deposit withdrawal up to the insured amount has brightened with the Deposit Insurance Fund (DIF) swelling to ₹1,10,380 crore at March-end 2020 from ₹93,750 crore of March-end 2019.

 

Further, following the deposit insurance limit being hiked five-fold to ₹5 lakh with effect from February 4, 2020, the deposit insurance premium rate per ₹100 deposit has also been increased to ₹0.12 (or 12 paise) with effect from April 1, 2020 against ₹0.10 (10 paise) earlier.

Since April 1, 2015, 52 UCBs have been placed under All Inclusive Directions by the Reserve Bank, per RBI’s Report on Trend and Progress of Banking in India 2019-20.

Out of the total claims settled by DICGC since inception, around 94.3 per cent of claims pertained to co-operative banks that were liquidated, amalgamated, or restructured.

RBI Directions

Section 35A of the Banking Regulation Act, 1949, empowers RBI to give Directions to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a way prejudicial to the interests of the banking company; or to secure the proper management of any banking company.

A Bank under Directions cannot, without prior RBI approval, grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, among others.

If such a bank’s license is cancelled by RBI, triggering the commencement of liquidation proceedings, it is only then that depositors are entitled to repayment of their deposits from DICGC up to the ₹5 lakh monetary ceiling.

So far, very few banks under Directions have been revived. The time lag between a UCB first being placed under Directions till its license cancelled is fairly long.

For example, in the case of Mumbai-based CKP Co-operative Bank, it was six years. During this entire period, deposit withdrawal was capped at ₹10,000 per depositor.

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